President Obama unveiled his $447 billion jobs program last Thursday. Most of the elements make sense and it will be far better than the $800 billion stimulus package put together by the then House Speaker, Nancy Pelosi in 2009. Several economists done cartwheels over the program, most notably Mark Zandi of Moody's, arguing that the program has the potential to increase economic growth by a full two percentage points next year. Trust me, Mark is either dreaming or totally in the tank for the Obama Administration.
In its essential elements the program envisions a 3.1% cut in payroll taxes for workers, up from the current 2%($175 bil.) a 3.1% cut in payroll taxes for businesses for incremental payrolls up to $50 million(($65 bil.)an extension of emergency unemployment benefits( $49 bil.) teacher and public employee retention($35 bil.), modernizing transportation infrastructure ($50 bil.) fixing schools($35 bil) and a few other things. First, most forecasters already modeled in the existing 2% payroll tax cut and the extention of emergency unemployment benefits. Second, not all of this will pass. Third, no forecaster has made any allowance for the contractionary effects of increasing taxes and/or cutting other spending to pay for the $447 billion program. Remember the President said the program will be paid for. If it is paid for concurrently, there is no Keynesian stimulus. Nevertheless, as I have been arguing for over a year, at least the Administration is trying to do something about the scourge of mass unemployment facing our country. Net net, it will help but not a whole lot.
Why? There was no mention energy development in the speech a private sector way of creating jobs. There was no mention of fast-tracking environmental approvals for the transportation project which means it will take forever for them to get started and of course all of this will be subject to costs and the rulemaking asociated with the prevailing wage requirements of the Davis-Bacon Act.
Buried in the speech there was a ray of hope on entitlement reform. The President admitted with respect to Medicare,"with an aging population and rising healthcare costs, we are spending too fast to sustain the program." He later added, "We have to reform Medicare to strengthen it." A very big admission and it opens the way for an entitlement deal later in the year.